Executive Summary / Key Takeaways

• Fortress Biotech operates a unique, diversified biopharmaceutical model focused on acquiring and advancing assets through a network of subsidiaries and partner companies, aiming to create long-term value via product revenue, equity holdings, and royalties.
• The recent FDA approval and commercial launch of Journey Medical's Emrosi for rosacea represents a significant near-term revenue driver, leveraging an existing sales force and demonstrating superior clinical efficacy against the current standard of care.
• Key strategic transactions, including the pending acquisition of Checkpoint Therapeutics by Sun Pharmaceutical Industries and the asset transfer of Cyprium's CUTX-101 to Sentynl, are poised to provide Fortress with non-dilutive cash inflows, potential future royalties, and validate the value of its pipeline assets.
• While the model offers diversification and potential for multiple value inflection points, it also entails financial risks, including ongoing operating losses, the need for substantial future capital, and potential dilution from financing activities across the portfolio.
• Investors should monitor the commercial trajectory of Emrosi, upcoming clinical data readouts (Triplex, CAEL-101), the PDUFA date for CUTX-101, the closing of the Checkpoint acquisition, and the company's ability to manage liquidity and secure funding across its various entities.

A Tapestry of Innovation: Fortress Biotech's Diversified Approach

Fortress Biotech, Inc. (FBIO) stands apart in the biopharmaceutical landscape with its distinctive, diversified business model. Rather than focusing solely on an internal pipeline, Fortress operates as a holding company and incubator, actively acquiring and advancing assets through a network of subsidiaries and partner companies. This strategy, which evolved from its origins as Coronado Biosciences focused on specific R&D programs like TSO for Crohn's disease and CNDO-109 for AML, aims to enhance long-term shareholder value through multiple streams: direct product revenue, equity ownership in partner companies, and potential dividend and royalty income from strategic collaborations and divestitures.

The company leverages an extensive network of key opinion leaders and partnerships with leading institutions like City of Hope, Fred Hutchinson Cancer Center, and AstraZeneca to identify promising opportunities. Fortress provides business, scientific, regulatory, legal, and financial expertise to its portfolio companies, helping them progress their assets. This structure allows Fortress to pursue a broad range of therapeutic areas simultaneously, spreading risk and increasing the potential for value-creating events across the portfolio.

Within this model, technological differentiation resides primarily within the individual portfolio companies and their specific product candidates. For instance, Journey Medical's newly launched Emrosi utilizes a modified-release formulation of minocycline, designed to offer a differentiated clinical profile. Phase 3 data demonstrated superior efficacy against the current oral standard of care, Oracea, on co-primary endpoints (inflammatory lesion count reduction and Investigator Global Assessment success), with high statistical significance. This quantifiable clinical edge is a key technological differentiator in the competitive rosacea market. Similarly, Helocyte's Triplex vaccine is engineered to induce a robust T-cell response to specific cytomegalovirus (CMV) proteins, aiming to convey protective immunity in transplant recipients – a novel approach with potential benefits over existing antiviral therapies. Mustang Bio's focus on CAR T-cell therapies and oncolytic viruses represents cutting-edge approaches in oncology and autoimmune diseases, with candidates like MB-106 showing promising objective response rates in specific patient populations (90% ORR in a Waldenstrom macroglobulinemia cohort). While precise, directly comparable quantitative performance metrics for all technologies versus all alternatives are not always publicly detailed, the strategic intent is clear: to acquire or develop assets with differentiated mechanisms or improved clinical profiles that can command market share and potentially premium pricing.

The biopharmaceutical industry itself is characterized by rapid technological change, intense competition, and a complex regulatory environment. Larger players like Pfizer (PFE), Amgen (AMGN), Merck (MRK), and Gilead Sciences (GILD) dominate the market with vast resources, diversified pipelines, and established global commercial infrastructures. These companies benefit from economies of scale in manufacturing and distribution, often leading to lower per-unit costs compared to smaller entities. They also possess significant financial power for large-scale M&A and R&D investment. Fortress positions itself by targeting niche markets and leveraging its network for efficient asset identification and development, aiming for quicker innovation cycles in specific areas. However, this approach means Fortress operates at a significantly smaller scale, with higher R&D expenses relative to revenue and negative profitability and cash flow metrics, contrasting sharply with the positive margins and substantial cash generation of its large-cap competitors. The competitive landscape is further complicated by indirect competitors, including firms developing gene editing technologies and AI-driven drug discovery platforms, which could potentially offer more cost-effective or faster development pathways in the future.

Performance and Liquidity Reflecting Strategic Evolution

Fortress Biotech's financial performance in the first quarter of 2025 reflects the dynamic nature of its diversified portfolio and ongoing strategic activities. Consolidated net product revenue for Q1 2025 was $13.139 million, a modest increase from $13.030 million in Q1 2024. This stability in top-line product sales was primarily driven by Journey Medical, where the initial commercial launch of Emrosi contributed $2.1 million in revenue, effectively offsetting a decrease in sales volume for Accutane due to increased market competition.

Operating expenses saw a significant decrease, falling from $49.596 million in Q1 2024 to $35.456 million in Q1 2025. This reduction was largely attributable to a substantial decrease in research and development expenses, which dropped from $24.839 million to $3.938 million. This R&D decline stemmed from reduced spending across several segments, including lower personnel, clinical trial, and outside service costs at Mustang Bio following strategic adjustments in 2024, decreased pre-approval and milestone expenses for Emrosi at Journey, and lower manufacturing and clinical costs at Checkpoint . Partially offsetting this was an increase in selling, general and administrative expenses, rising from $17.941 million to $25.663 million. This increase was driven by higher legal and accounting fees and transaction-related costs at Checkpoint associated with the pending Sun Pharma acquisition, as well as incremental operating activities related to the Emrosi launch at Journey. The net result was a reduced loss from operations, improving from $36.566 million in Q1 2024 to $22.317 million in Q1 2025.

Journey Medical remains the primary source of operating income for Fortress. Journey reported total revenues of $56.1 million for the full year 2024, down slightly from $79 million in 2023 (which included a large upfront licensing payment). Journey achieved positive non-GAAP adjusted EBITDA in Q4 2024, marking its sixth consecutive quarter of positive adjusted EBITDA, indicating progress towards sustainable operational profitability within this key segment. While legacy products like Targadox continue to face erosion from generic competition, Journey's core four products (Qbrexza, Accutane, Amzeeq, Zilxi) have shown relative stability, with Qbrexza demonstrating year-over-year script growth. The successful launch of Emrosi is expected to significantly enhance Journey's revenue and operating leverage moving forward.

As of March 31, 2025, Fortress and its private subsidiaries held $19.5 million in cash and cash equivalents, which management believes is sufficient to fund the Parent Entity's operations for at least 12 months from the filing date (May 15, 2025). However, the company has a history of operating losses and requires substantial additional capital to fund ongoing R&D, potential commercialization efforts, and strategic investments across its portfolio. Fortress relies on a combination of cash on hand, debt financing, third-party financings at the subsidiary level, and proceeds from asset/company sales. The company's debt obligations, including the Oaktree Agreement and Journey's SWK Term Loan, contain financial covenants (minimum liquidity, minimum net sales for Journey) that must be met, with failure potentially leading to default and acceleration of debt. Fortress was in compliance with these covenants as of March 31, 2025. A notable challenge to capital raising is the pause in Series A Preferred Stock dividend payments since July 2024, which has rendered Fortress ineligible to use short-form S-3 registration statements, potentially increasing the cost and complexity of future equity financings.

Strategic Catalysts and Future Outlook

Fortress Biotech's investment narrative is heavily influenced by several near-term strategic catalysts and the potential of its diverse pipeline. The most significant event is the pending acquisition of Checkpoint Therapeutics by Sun Pharmaceutical Industries (SUNPHARMA). Announced in March 2025, this transaction, expected to close shortly after the May 28, 2025 stockholder meeting, will provide Fortress with approximately $28 million in cash shortly after closing, plus eligibility for a contingent value right of up to $4.8 million upon EU approval of UNLOXCYT (cosibelimab-ipdl) and a 2.5% royalty on future worldwide net sales of certain products. This divestiture provides non-dilutive funding and validates the value created within the Checkpoint subsidiary, particularly following the FDA approval of UNLOXCYT in December 2024.

Another important catalyst is the FDA's priority review of Cyprium Therapeutics' New Drug Application for CUTX-101 (copper histidinate) for Menkes disease, with a PDUFA goal date of September 30, 2025. While the asset was transferred to Sentynl Therapeutics in December 2023, Cyprium remains eligible for up to $129 million in development and sales milestones, tiered royalties (3% to 12.5%), and retains 100% ownership of any potential FDA Priority Review Voucher. A potential approval and subsequent PRV sale could provide a significant cash infusion to Cyprium and, indirectly, Fortress.

The commercial launch of Emrosi by Journey Medical in March 2025 is a critical operational focus. Management anticipates meaningful revenue contribution from Emrosi starting in Q2 2025, with expectations for substantial increases in payer coverage throughout 2025 and 2026, targeting peak commercial coverage within 12-18 months post-launch. Journey estimates Emrosi's peak annual sales potential at $200 million in the U.S. and $100 million internationally, with plans to out-license international rights. The positive reception of Emrosi's Phase 3 data, including its publication in JAMA Dermatology and planned presentations, supports the commercial outlook.

Beyond these near-term events, the pipeline holds further potential. Helocyte's Triplex CMV vaccine is advancing, with topline data from a Phase 2 HIV/CMV trial expected in Q3 2025 and a Phase 2 HSCT donor vaccination trial underway. AstraZeneca (AZN) is expected to report topline data from two global Phase 3 studies of CAEL-101 for AL amyloidosis in the second half of 2025, which could trigger significant milestone payments and royalties to Fortress. Mustang Bio (MBIO) continues to explore strategic options and advance its cell and gene therapy candidates, including potential clinical trial initiations for MB-109 and MB-106 in 2026. Avenue Therapeutics , despite its Nasdaq delisting and termination of the AJ201 license, retains potential future payments and royalties from AnnJi, representing a contingent long-term value stream. Furthermore, Fortress's collaboration with Partex NV utilizing AI for asset identification underscores a commitment to leveraging technology for future pipeline expansion.

Risks and Challenges in a Dynamic Environment

Investing in Fortress Biotech involves navigating a complex set of risks inherent in its diversified model and the biopharmaceutical industry. A primary challenge is the company's ongoing need for substantial additional funding to support its numerous development programs and operational expenses. While recent strategic transactions and subsidiary financings have provided capital, the ability to raise future funds on favorable terms is not assured, particularly given the pause in preferred dividends impacting S-3 eligibility and potentially leading to significant dilution for existing common stockholders through future equity issuances.

The success of the investment thesis is heavily reliant on the successful development, regulatory approval, and commercialization of product candidates across multiple independent entities. Drug development is inherently risky, with high failure rates in clinical trials. Delays, unexpected safety findings, or insufficient efficacy could derail programs, leading to significant losses on invested capital. Even upon approval, commercial success is not guaranteed, facing challenges from market acceptance, physician adoption, and particularly, payer coverage and reimbursement. Journey Medical's experience with generic competition for products like Targadox and Accutane highlights the vulnerability of revenue streams to market dynamics and patent expiry.

Operational risks are also present, stemming from reliance on third parties for manufacturing, clinical trials, and other services. Disruptions in supply chains or failures by contract organizations to meet quality or timelines could significantly impact product availability and development progress. The cybersecurity incident experienced by Journey Medical underscores the potential for operational and financial disruption from external threats.

The diversified structure, while a strength, also presents complexities. Managing relationships with multiple subsidiaries, partner companies, and collaborators requires significant resources and can lead to potential conflicts of interest given shared management and board members. The contingent nature of payments from certain strategic deals means that future revenue streams are dependent on the success and actions of third-party partners. Furthermore, the delisting of Avenue Therapeutics (ATXI) from Nasdaq illustrates the risks associated with the performance and compliance of public partner companies.

Regulatory risks are pervasive, with potential impacts from changes in legislation, stricter enforcement, or delays in review processes. The Inflation Reduction Act introduces uncertainty regarding future drug pricing and reimbursement, which could affect the profitability of commercialized products.

Conclusion

Fortress Biotech presents a compelling, albeit complex, investment case centered on its diversified portfolio strategy and the potential for multiple value-creating catalysts. The recent FDA approval and launch of Emrosi by Journey Medical provides a tangible near-term revenue growth driver, leveraging existing commercial infrastructure and validated by strong clinical data. Coupled with the pending Checkpoint (CHKP) acquisition and the potential for a CUTX-101 approval and PRV, Fortress has several significant events on the horizon that could generate non-dilutive capital and future royalty streams, validating its model of incubating and advancing assets.

However, the company's financial health remains challenged by ongoing operating losses and a persistent need for external funding across its entities. The success of the investment hinges on the execution of the Emrosi launch, the realization of value from strategic transactions, positive outcomes from ongoing clinical trials, and the ability to effectively manage liquidity and secure necessary capital without excessive dilution. Investors should closely monitor the commercial ramp-up of Emrosi, progress towards payer coverage milestones, key pipeline data readouts, and the financial performance and funding activities of Fortress and its core partner companies as indicators of the strategy's long-term viability and potential to unlock value.